Anyone can start a business in Australia, which is a positive thing because businesses present incredible opportunities to make money and create jobs for others.
However, starting and operating a business can be complicated. Many people find they have bitten off more than they can chew, especially when it comes to paying taxes.
If you are behind on tax obligations such as filing your BAS, paying GST, paying your staff super and handing over PAYG tax, things can catch up with you pretty quickly. What many business owners don’t realise is that the Australian Tax Office has the option to recover unpaid tax dollars from you personally.
The ATO will start the process to recover money owed by sending you a Director Penalty Notice.
What is a Director Penalty Notice?
A Director Penalty Notice (DPN) is a notice from the ATO that is sent to the director if a business has overdue tax bills (usually around three months after the due date has come and gone), or if Business Activity Statements (BAS) have not been filed on time.
The notice will outline the unpaid amounts and explain the options available to resolve the matter.
The DPN will have a date on it and will outline how long you have to pay the money. It may make you immediately personally liable (this is known as a lockdown DPN) or give you a set time period (usually 21 days) to satisfy the requirements of the notice before you become personally liable.
It’s worth noting that a Director Penalty Notice will be valid from the date of delivery to your registered business or residential address, even if you have recently moved.
You can still receive a DPN if you have left your position as director of a company. An incoming director who has been in the role for more than 30 days may also receive this type of notice.
One of the reasons DPNs exist is to prevent company directors from failing to meet their tax payment and reporting obligations, then dissolving the company and walking away without being personally liable.
What to do if you receive a DPN
If one of these notices makes its way to you, generally your options include the following:
- Pay off the debt in full
- Pay off the debt in instalments within the allocated time frame
- Put the company into administration or liquidation so you can find a way to recover the unpaid money
- Work with a specialist to restructure your business
- Share a valid defence that explains why you should not be liable for the business’s tax debts
If you fail to do any of the above, the amounts the business owes will fall to you personally to repay.
Of course, the easiest solution is to complete your reporting obligations and pay off your debts. If the DPN has been issued because you lost track of time and didn’t pay your bills, you could quickly resolve it by transferring the funds to the ATO. You can work with your accountant and bookkeeper to find the money, or potentially borrow funds to cover the costs, if you are certain you can handle the additional debt.
It gets more complicated when the money is not available to pay off the amounts owing. This is when you will need the help of a legal professional who will either:
- Help you to put your company into administration
- Help with a restructure so you can pay your debts
- Help you confirm that you did in fact take reasonable steps to avoid the situation
- Help you confirm that the reason for not lodging or failing to pay was due to illness or other unavoidable circumstances
Get support to resolve your DPN
The last thing you want is to be personally liable for your business’s GST, superannuation and PAYG debts as it can result in bankruptcy and a great deal of stress for your family.
Once you receive a DPN, you need to take action very quickly. Those 21 days can go very quickly and result in additional problems such as the ATO commencing court proceedings against you to recover the money.
One of the best things to do is immediately call a lawyer who specialises in areas including business, restructuring, bankruptcy and insolvency. This professional will be able to help you figure out the best way forward.
Before you get in touch with your lawyer, do your best to find records of your company’s recent tax payments and evidence of your current financial position. Then you can work together to resolve the situation.
Need help to resolve a Director Penalty Notice? If you’re on the Gold Coast, contact Crest Lawyers today.